Markets recovers after initial slide

The London market held its ground yesterday even though US Federal Reserve chairman Ben Bernanke dashed hopes for more money printing to boost the American economy.

Bernanke admitted US growth was disappointing but gave no indication that fresh stimulus measures were imminent, instead hinting that the government should do more to help.

The FTSE 100 index closed down just 1.18 points at 5,129.92 after a late rally that saw it regain nearly 2 per cent of its value.

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The London market was in negative territory before the speech, as hopes faded that more stimulus measures would be announced. Bernanke’s words at first caused the market losses to deepen, with London’s blue-chip shares index at times more than 100 points in the red.

But a late rally saw the London market regain its confidence ahead of an English bank holiday weekend. Traders took comfort from the Fed’s decision to extend its next meeting to two days to allow it to discuss possible stimulus measures.

David Jones, market strategist at IG Index, said: “There’s no doubt that investors have been both financially and psychologically beaten up by August trade in the markets. But yesterday’s close has left the FTSE about 1.5 per cent higher on the week and, now the uncertainty of Jackson Hole is out of the way, it may well have cleared the decks in the short term at least for further gradual recovery.”

The late rally came despite US second-quarter economic growth being revised downwards to 1 per cent from 1.3 per cent, heightening fears the US will lead the world into recession. The Dow Jones Industrial Average had been down 1.5 per cent, on top of similar falls last night, but also rebounded into positive territory.

The DAX in Germany and the CAC 40 in France also tumbled by about 1 per cent but they both pulled back much of their earlier losses.

The pound was up against the dollar, at $1.63, after greenback was hit by the downward revision in US GDP. But sterling was down against the euro at €1.13.

Gold, which hit record highs of $1,912 earlier this month because it is seen as a safe haven, made slight gains yesterday in rising to $1,781.

Banks, which have borne the brunt of much of the global recovery fears, were again among the biggest losers.

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Taxpayer-backed Royal Bank of Scotland was down 5 per cent, or 1.2p at 21.9p, and Lloyds Banking Group was off 4 per cent, or 1.3p at 29.7p. Barclays was 2 per cent lower, off 2.9p at 155p, while HSBC was down 9.3p at 503.8p, or 2 per cent.

There was little in the way of blue-chip news to drive London trading, although investors returned to car insurer Admiral after a dreadful week for the company’s shares in the wake of results on Wednesday. Shares have fallen 17 per cent since its warning over higher-than-expected injury claims, but were 39p or 3 per cent higher yesterday at 1,318p.

Among the Scottish stocks, shares in Johnston Press – the publisher of The Scotsman and Scotland on Sunday – climbed 4.2 per cent or 0.2p to 4.95p after Tindle Newspapers splashed out £286,000 on a further six million shares in the firm, taking its holding to 4.36 per cent.